Testing the intransitivity explanation of the Allais paradox

• Published in: Theory and decision Vol. 47; no. 3; pp. 229 - 245
• Main Authors: GROES, E, JACOBSEN, H. J, SLOTH, B, TRANAES, T
• Format: Journal Article
• Language: English
• Published: Dordrecht Springer 01.12.1999; Kluwer Academic Publishers; Springer Nature B.V
• Subjects: Applied sciences; Correlation analysis; Decision theory; Decision theory. Utility theory; Exact sciences and technology; Expected utility; Experiments; Operational research and scientific management; Operational research. Management science; Preferences; Probability; Studies; Theory; Utility theory; Violations; Europe; Utility theory; Preference; Decision theory
• ISSN: 0040-5833; 1573-7187
• DOI: 10.1023/A:1005177230444

This paper uses a two-dimensional version of a standard common consequence experiment to test the intransitivity explanation of Allais-paradox-type violations of expected utility theory. We compare the common consequence effect of two choice problems differing only with respect to whether alternatives are statistically correlated or independent. We framed the experiment so that intransitive preferences could explain violating behavior when alternatives are independent, but not when they are correlated. We found the same pattern of violation in the two cases. This is evidence against intransitivity as an explanation of the Allais Paradox. The question whether violations of expected utility are mainly due to intransitivity or to violation of independence is important since it is exactly on this issue the main new decision theories differ.[PUBLICATION ABSTRACT]